Profile of Professor Banks

Something else needs to be pondered here: there are supposedly sizable shale reserves in the EU, but even so sizable reserves have not meant a sizable production of shale oil and gas. This observation – ample reserves but modest or no output – has led to questions about the amount of production that can or will take place in the long run from the estimated U.S. shale oil and shale gas reserves that we hear so much about.

Lies and misunderstandings about energy resources are plentiful in every quarter of the globe, and the contention often promulgated that the U.S. still has a technological superiority over Europe is best dismissed. Remember that President Ronald Reagan attempted to stop the flow of natural gas from Russia to Western Europe by banning the sale of compressors for natural gas pipelines. Mr Reagan seemed to have forgotten – or was never informed – or was informed but didn’t believe that the Russians constructed the world’s first nuclear power station for civilian use, and as I pointed out in a lecture at Cambridge University, they would have no problem producing all the compressors (for gas pipelines ) that they required. That soon took place through the joint efforts of Russian aircraft manufacturers and the firm Gazprom. (Incidentally, that first nuclear power station in Russia has just been turned off, and by the same man who turned it on many years ago.)

The most significant uses of energy in the U.S. are industrial applications (process steam, direct heat and industrial drive), transportation, and space heating. This arrangement probably applies to most industrial countries. In case you want to see the economy of the U.S. (and some other countries) deteriorate, convince the decision makers to make the kind of mistakes with their energy legislation and management that would result in the price of energy for the first two of these uses – and maybe the third – escalating. If that is too complicated, just tell them to imitate the absurd ‘energiwende’ (= ‘energy transition’) taking place in Germany

Things were different at the power station in Chicago that served my district however. Large quantities of coal or oil were shoved into furnaces by humans and/or machines, and there was a collection of generators that produced electricity. Some of that electricity reached my home, and in the very late evenings – and sometimes the very early mornings – provided the illumination that made it possible for me to study my favourite subjects. I can also add that where natural gas systems are concerned, there is a transition or partial-transition taking place from the steam turbine to an arrangement that features the extremely rapid burning of natural gas in a nearly explosive manner, as in in a jet engine. The principal components of this system are fuel and air intake, combustion chamber and turbine.

Many things are mentioned in this book that readers are already aware of, but their knowledge should be made more systematic. For instance, it is important to appreciate that electricity is a ‘commodity’, or ‘good’ that provides ‘satisfaction’ (i.e. ‘utility’) in the form of items like heat or light, and therefore must be paid for, with the charges depending on the amount used. There is a lamp next to the computer on which I write this book, and I pay a trivial amount for the bulb in the lamp, which supplies power (in the form of adequate light, and whose strength is measured in watts). On the other hand, the largest expense is for energy, measured in watt-hours. Some primary school algebra might be useful here: Energy (E) = Wt, where W is watts and t is time, and thus the unit for E (Energy) is watt-hours. Your total electricity bill might be in dollars per watt hour (which is the price of a watt-hour, or $/Wh) times the number of hours for which you are ‘billed’. Never forget the distinction being pointed out here between power and energy, and make sure that you remember the units in which they are measured (watts and watt-hours, or perhaps kilowatts and kilowatt-hours).

The power station in Chicago that provided my electricity probably burned coal or oil, both of which were comparatively inexpensive at the time. Most likely it was coal, which was purchased by the short ton (= 2000 pounds), or the metric ton (= tonne = 2,205 pounds). If you are annoyed by the mention of pounds (instead of kilograms), then the conversion to kilograms is straightforward: 2.2 pounds = 1 kilogram.

Now for the real thermodynamic deal. Each tonne of coal contains on average 27,563,000 heat units called British Thermal Units (Btu), which will be rounded off here to 27,6 million Btu, or 27.6 MBtu. Most important, in a perfect system, 3,412 Btu are required to generate a kilowatt-hour (kWh) of electric energy (as distinguished from power). There is a problem however. The system of which your house is a part, or for that matter the White House (i.e. the presidential residence in Washington DC), is not perfect, and so instead of 3,412 Btu generating a kilowatt-hour of electricity, it might require e.g. 9,000 Btu to generate a kilowatt-hour of electricity, which is called the heat rate. (Note, the heat rate in this example is taken as 9000 Btu/kilowatt-hour, but it could be greater or smaller.) Accordingly, if you purchase a tonne (2205 pounds) of coal, and it contains 27,600,000 Btu, then it could generate 27,600,000/ 9,000 = 3066 = 3.066 x 10³ = 3066 kilowatt hours or 3,055,000 watt hours of electricity.

For instance, if I had a tonne of coal to burn, and there were no other loads (e.g. lights, TV, toasters, etc) on the line, the 40 watt bulb next to my computer could supply 3,055,000/0.040 = 76,375,000 hours of light. Of course the heat rate selected above was an approximation, and so the actual heat rate for this kind of coal could have been more or less than 9,000 Btu. Similarly, the Btu per tonne of coal was an average, but still you might get some satisfaction from informing anyone who asks that a tonne of coal could – in theory at least – provide enough electricity to make the writing of a dozen books like this possible (if there were no other ‘loads’ on the line).

Do yourself a favour and go through the above simple calculations again, starting with the diagram that you have memorized. Then, take a deep breath and – sitting and then standing – explain to yourself or a fictional ‘audience’ the materials in the above paragraphs. They and you will be impressed. Of course, it is perfectly understandable if you prefer to wait until you are deeper into this book before you carry out this exercise.

I have made a special effort to keep complicated mathematics and concepts out of this book, except in appendices, but you should try to avoid being in a position where you do not know what a speaker is talking about when he or she uses expressions like Btu, loads, electric energy, etc., and perhaps moves to some elementary mathematics, much of which of course is unnecessary, and is presented because audiences have a way of thinking that anyone who can write and discuss an equation is highly intelligent, whether the equation is necessary or relevant.

And once again, if you cannot get the definitions you need from this book, turn to GOOGLE, as I did in order to complete this chapter. Similarly, do not hesitate to employ the terminology being used above in your lectures or conversations, followed by detailed explanations if that is necessary to show friendly or unfriendly listeners what you can do. You should also try to appreciate the repetition in this book As I may have mentioned, I had the very good luck to discover the value of repetition at an early age, and I can suggest that your progress in understanding this text can be measured by the ease with which you receive, adjust to, and expand this repetition.

Just below is a diagram with a box at the top that says GENERATION. I could not possibly imagine that large scale generation means generating electricity with wind turbines, although when wind turbines make economic sense they should be employed. According to Mike Barnard, who is described by a Forbes publication as a wind expert, these turbines always make sense, and nuclear is being outstripped by wind. I think that readers of this book should look into this very carefully, because I happen to believe that in every industrial country in the world managers, engineers and even scientists are informing politicians and civil servants, and maybe even voters, that the attempt to replace nuclear with wind is madness, and equivalent to an attack on existing standards of living in countries where decision makers find it befitting. According to Barnard, the mathematics shows that even in China, wind energy is expanding and nuclear is losing the race, and the reason is delays, cost overruns, and unmet expectations. Check this out, because it happens to be preposterous!

AN ELEMENTARY LOOK AT AN ELECTRIC NETWORK
We can begin with the following diagram.

Large Industries

GENERATION

TRANSMISSION

DISTRIBUTION

kV: kilovolt

V: Volts

Step-up Transformer

Step-down (SD) Transformer

(SD)

(SD)

Very Large Industries

(SD)

Medium Industries

Large Service Industries

6-20 kV

130-220 kV

200-250+ kV

Service Industries

Residential

Commercial

220-380 V

Figure 2

My tour of duty in the American army in Japan did not begin in the infantry because I felt compelled to allow my superiors to believe that I had completed one year of engineering school, which was partially correct. I had completed one year but had unfortunately failed all of my engineering courses – mathematics, physics and technical drawing – twice, and as a result was pronounced as hopeless by the Dean of Engineering at Illinois Institute of Technology (Chicago, Illinois), who then expelled me for poor scholarship. As a matter of fact, I believe that scholastically I was last in my class.

When I arrived in Japan, surprise-surprise, because I was first assigned to an engineering company in a small town called Atsugi, which was next to a dam. As a result I was able to get an elementary glimpse into how the system shown in the above diagram functioned, because I occasionally became involved with transformers and the distribution system. Most important, falling water and the dam supplied most – though probably not all – of the electricity for that district, and on one dramatic occasion the company I was in had to leave Atsugi because excessive rain threatened to flood our small camp.

During the 3 or 4 months I was in that company in Atsugi and Yokohoma, I began the reading and study of mathematics which made it possible for me to return to engineering school, and to avoid being expelled again. Of course, what I did not learn were the details of how an electric network of the type shown in Figure 2 functioned, and as a result develop a special fondness for it. Instead my first employment in engineering involved designing terminal installations for electronics on destroyer escorts at the Great Lakes Naval Training Facility (Illinois). I became familiar with the system shown in the above figure while writing my first energy economics textbook.

I can also admit that power line engineering involves more than what is shown in the above diagram, but that diagram and the remainder of this chapter – learned perfectly – suffices for a portion of the course in Energy Economics 101 that I hope to be invited to teach. First of all it is essential to differentiate between a transmission line and a distribution line. This terminology holds also for natural gas pipelines, and the point is that a transmission line carries a large load, while the branches of the distribution system carry a comparatively small amount. Try to be clear on what is happening in the figure: the output of the generation facility (usually in kilovolts) is increased by a step-up transformer, while step-down transformers reduce the high voltage in the power lines to the low voltage that is needed to cook your evening meal.

The transmission lines are often very long, while distribution lines are comparatively short, and it does not take many lectures in your favorite electrical engineering course for you to understand that a significant part of the cost of moving electricity from one place to another is (transmission) line losses due to the heating of the wires between the input site and the output site. Thus if a large amount of electricity is required at the terminal end of a line, a great deal must be put in at the generating station to compensate for the amount that will be lost, and the wires carrying that electricity must be large enough so that they do not overheat. The next time you visit the unembellished ski area here in Uppsala, notice the large transmission towers with wires attached to them visible from the top of the lift system. These structures and the wires and the transformers hanging from them usually cost a great deal of money.

Thus, what is going on in that diagram is simple, at least in theory. Different consumers are supplied with electricity at different voltage levels. In order to reduce ‘line losses’, the electricity that is produced by the source – e.g. the dam in Atsugi – is transformed to a higher voltage by step-up transformers. Various large factories or industrial undertakings may require a comparatively high voltage that is taken directly from the transmission line, and it should be clear from Figure 2 that all industries do not require the same voltage. Higher voltages are usually required by heavy industry than are required for light industry, while e.g. transportation facilities such as subways and electric trains require a higher voltage than e.g. hospitals. The lowest voltages are shown in the distribution system at the bottom of Figure 2.

Before leaving this topic, something very important deserves to be noted, and hopefully remembered. The real – i.e. inflation adjusted – price of electricity in the U.S. has been flat for the past 40 or 50 years, but now it is expected that it will rise. Ostensibly many or most powers plants will have to be replaced or retired in the coming 40 to 50 years, while at the same time there must be an extensive upgrading of power lines. It has been estimated that the annual capital expenditures of investor-owned utilities in the last few years have been close to 100 billion dollars, which is the largest of any sector in the country, while the Brattle Group claims that the costs of future investments up t0 2030 might be as high as two trillion dollars.

Maybe, but I can remember an American Energy Secretary saying the while the U.S. was a super-power, its electric power sector scarcely came up to Third World standards. This was at a time when electric deregulation in the U.S. was a scandal, and knowing what I knew about Third World power systems, that statement by Mr Energy Secretary was totally false, irrelevant and mean to attract attention.

Before turning to one of my favorite topics, electric deregulation, hydroelectricity deserves some attention. There is (measurable) power in flowing and/or falling water, and if it can turn an armature, there is also electric energy. On the basis of reading the previous chapters of this book you already are acquainted with the British Thermal Unit (Btu) which is a measure of energy, and according to Professor John C. Fisher of MIT (1974), it takes on the average 10,500 Btu to generate a kilowatt hour of energy in a hydroelectric installation. What is involved is the amount of (kinetic) energy in flowing and/or falling water that can e.g. be readily transformed into electricity, and moreover measured by being compared with e.g. the energy obtained from e.g. a fuel burning power-plant that was satisfying the same load.

The energy from a fuel burning power-plant that – in theory – could provide all the electricity needed in e.g. Atsugi Japan, and supplied by hydro, is a mystery to me. I do not know how many light bulbs, radios, electric toasters and stoves, etc formed the electric load in that charming hamlet, but a census of that load (in watts or kilowatts) – and approximately when it was on the line - would certainly have been possible. Had that census been taken – and if all the load in Atsugi had been supplied by water from the river and the dam next to our camp – then I suspect that a fairly simple calculation would have led to the kind of result provided by professor Fisher (although numerically it might have been very different from 10,500 Btu/kilowatt-hour.)

The point you need to absorb here is that flowing and/or falling water means energy, and once that is available, some observers say that this is the best source of both base load power (that is always on the line) and ‘peaking’ power. Perhaps, but in the examples in my classrooms I always use natural gas to carry the peak load.
THE FAILURE OF ELECTRIC DEREGULATION
“Starting in June 2000, California’s wholesale electricity prices

increased to unprecedented levels. The June 2000 average of

$143 per MWh was more than twice as high as in any previous month

since the market opened in April 1998. These high prices produced

enormous profits for generating companies and financial crises for

regulated utilities.

– Professor Severin Borenstein (2002)

Professor Borenstein is Director of the California Energy Institute, and Professor of Business Administration and Public Policy at the University of California (Berkeley). As far as I am concerned, his word is law where this topic is concerned, and I can only express my disgust at myself for not having a version of his brilliant article ‘THE TROUBLE WITH ELECTRICITY MARKETS: UNDERSTANDING CALIFORNIA’S RESTRUCTURING DISASTER’ to study while I was presenting my lectures on electricity deregulation in Hong Kong. I was however aware that Professor John Kay – widely recognized as an important player on the upper echelon of the UK academic world, as well as a warm friend of deregulation – admitted that “electricity prices in the UK have been too high because generators were able to able to manipulate the (electric) pool to their advantage.”

At the same time that I tender the above confession, I feel that I should be congratulated for my alertness when I was trying to polish up my first energy economics textbook, a year or two before its publication (2000). At a time when lies and misunderstandings about electricity deregulation filled every cubic foot of the gorgeous Stockholm air, I wrote “In February, 1998, the lights went out in the central district of Auckland (New Zealand), and in one of the most modern districts of one of the most modern cities in the world, they stayed out for more than a month.” I then made it clear that ‘accidents’ of this kind can happen in any country where attempts are made to transform energy policy to competition policy, which was a travesty proposed for Sweden by some of the most influential academics, and partially adopted.

And not just Sweden. I gave a keynote address at a conference on electricity in Lima (Peru), during which I interrupted my prepared talk to inform the large number of energy economists and engineers from the Caribbean and South America who were present that it would be an enormous mistake to deregulate electricity.

Some disagreed, but fortunately not many, because in the June 18, 2002 issue of the (UK) Financial Times, there were two mentions of violent incidents in connection with the deregulation of electricity. One of those notices began as follows: “Some 1,700 soldiers and police poured into the Peruvian city of Arequipa yesterday after government imposed a state of emergency and curfew to quell bitter protests against two electricity privatisations.” There was also some violence in the Dominican Republic, and I heard some talk about this sort of thing being likely in other localities where politicians and their ignorant academic advisers gave deregulators permission to harass electricity consumers (i.e. ‘ratepayers’). By way of contrast, in Brazil, the CEO of a large power company apparently called deregulation a mistake.

The same attitude was taken by the directors of the largest power company in Hong Kong, which is why I was able to enjoy a term as a visiting professor in that marvellous city, culminating my tour with a brilliant lecture at the Hong Kong Institution of Engineers, in which – unlike my earlier performances – I reprimanded anyone who did not share my opinion of that malicious practice.

For readers who – unlike myself – have not been able to enjoy an engineering education, perhaps a little background might be useful. The first thing to understand is that for a long time firms that generated electric power were (correctly) treated as a natural monopoly – although deregulation ‘wonks’ (academics) had a tendency to insist that these firms belonged in the same kind of competitive setup as e.g. fast-food outlets. Moreover, having to sell electricity on a cost-plus basis, with regulators allowed to examine their every transaction if they thought it necessary, was not a situation that sweetened the careers of many power company executives. What they wanted was an arrangement such as that provided the large Swedish firm Vattenfall, which deregulation provided with an opportunity to squander as much money in Germany and the Netherlands as is spent annually on health care in Sweden.

In any event, after arriving in Hong Kong I began trying to convince students and colleagues that the point was to establish more or less centralized systems, with a vertical monopoly structure featuring generators (i.e. ‘wholesalers’) selling to or even owning utilities (i.e. retailers), who in turn sold to households and small businesses (and maybe even to very large businesses who often are in a position to buy directly from generators). If you stick with this book to the bitter end you will receive a more thorough presentation of this arrangement, though I can mention here that the key word in all this seems to be ‘integration’ – as in integrated (and regulated) monopolies that perform the full range of functions necessary to provide electricity for all categories of consumers at reasonable prices. To this should be added regulators who know that the purpose of regulation is to ensure that households and above all industries obtain the electricity they need to remain competitive!

Rather than go into a song-and-dance about ‘loop flow’ and Kirchoff’s Law, what happened was that with lies and cleverly constructed misunderstandings, electric deregulation made it possible for a system that satisfied most households and businesses to be transformed into one in which “market pressures” were created that gave generators the opportunity to raise prices and make enormous profits. This was almost as true in Sweden as in California, where the largest generating firm in this country was provided with what amounted to a license to make fools of the rate payers. Or, as one journalist suggested, we (households) may be destined to spend a substantial part of our working lives endeavouring to boost the incomes of electricity suppliers.